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Wednesday, September 9, 2009

Stock Chart Pattern - ICI India Ltd (An Update)

The stock chart pattern of ICI India was analysed 6 months back, when the BSE Sensex was near its nadir. A cash rich company with generous dividend payments and steady growth, it has enhanced share holder value by divesting unrelated businesses and using some of the cash to buy back its own shares.

Let us have a look at the 1 year bar chart pattern of ICI India and check out how the stock has fared in the past 6 months:-

ICI_Sep909

In early Mar '09, the stock was at 416 and below its 200 day EMA. The bull rally had already started from the Oct '08 low - as confirmed by the progressively higher tops and bottoms. Note the gradual up move, well supported by the 50 day EMA.

The stock is neither a trader's favourite, nor one that FIIs lap up - hence the low volume of transactions. The low OBV reading indicated that right up to Jun '09, when the stock entered a bullish consolidation pattern called an 'ascending triangle' (i.e. flat top and a rising bottom).

The consolidation continued with a small up-tick in volume till the end of Aug '09. The slowly rising OBV indicates 'accumulation'. Volumes peaked at the  end of Aug '09, and the stock broke out above the resistance at the 550 level. There has been some selling after the break out, and now the resistance level has turned into a support level.

Both the RSI and MACD are showing negative divergence, making lower tops as the stock made a new high. The slow stochastic has dropped from the overbought zone and is now at the 50% level with the %K line below the %D. The stock may consolidate, or correct some more.

The rise of the ICI India stock from 416 to 557 means a return of 34% in 6 months. Add the Rs 16 dividend, and the return becomes a little more than 37.5%. That means an annualised return of 75%. Not bad for a boring, stalwart stock that manufactured paints 10 years ago and will continue to do so 10 years from now. It won't cause you sleepless nights and can be held 'forever'.

2 comments:

raj said...

sir,
can u discuss some contrarian stock which come to your mind

Subhankar said...

Hi Raj

I've recently written about Indian Hotels. I think it is a good contrarian play - because its earnings have suffered due to the 26/11 devastation and then the swine flu scare.

These are temporary problems which will get sorted out soon.